(REVISED  FORM) 


PROPOSED  PLAN 


for 


lollection  of  the  Foreign  Debt  of  the  United  States 
Settlement  of  German  Reparations 


and 


ttablishment  of  an  International  Gold  Currency 


BY 

FRANK  D.  PAVEY 


MEMBER  OF  THE  BAR  OF  THE  STATE  OF  NEW  YORK 


Revised  and  Reprinted 

for  the 

NATIONAL  SECURITY  LEAGUE 
No.  17  East  49th  Street 
York,  N.  Y. 


CRz 


NATIONAL  SECURITY  LEAGUE 

Seventeen  East  Forty-Ninth  Street 

New  York,  N.  Y. 


Mr.  Frank  D.  Pavey  has  submitted  to  the  President  and 
Congress  of  the  United  States  a  proposed  plan  for  the 
collection  of  the  foreign  debt  of  the  United  States  in  con- 
nection with  the  settlement  of  German  reparations  and  the 
establishment  of  an  international  gold  secured  currency. 
While  the  National  Security  League  assumes  no  responsi- 
bility for  the  personal  opinions  of  the  author  it  considers  his 
argument  one  of  the  most  logical,  clear  and  forceful  contri- 
butions to  the  discussion  of  the  subjects  covered  by  it  and 
recommends  his  proposals  to  the  serious  consideration  of 
all  persons  interested  in  the  international  economic  situation. 

Mr.  Pavey  is  a  native  of  the  State  of  Ohio;  a  graduate 
of  Yale  College  and  a  former  member  of  the  Senate  and 
Assembly  of  the  State  of  New  York.  He  was  counsel  at 
Paris  to  the  Spanish  financial  interests  in  the  negotiation  of 
the  treaty  of  peace  between  Spain  and  the  United  States  and 
the  representative  of  Cuban  commercial  organizations  in  sub- 
sequent economic  readjustments  at  Washington.  He  was 
counsel  to  the  Legation  of  Panama  in  the  preparation  of  the 
Hay-Bunau-Varilla  Treaty  for  the  construction  of  the 
Panama  Canal  and  counsel  to  the  government  of  Ecuador  in 
an  international  arbitration  at  Quito.  He  is  a  member  of  the 
National  Security  League;  a  director  of  the  France-America 
Society  at  New  York  and  General  Vice-President  of  the 
Federation  de  1'Alliance  Frangaise  aux  Etats-Unis  et  au  Ca- 
nada— an  international  organization  of  more  than  220  societies 
in  the  United  States  and  Canada. 

Publicity  Director,  National  Security  League. 


TABLE  OF  TOPICS 

Page 

The   Proposed    Plan . . 3 

The   German   Reparations   Farce 5 

The   Impending   Bankruptcy  of   Germany •  • 8 

The  Dishonesty  of  the  German  Government. 10 

German  Paper  Currency  Issues  Since  the  Armistice....  11 

Bankruptcy   the    Best   Solution •-....  12 

Repudiation  of  the  German  War  Debts 14 

The  World  War  was  Unjust  and  Unlawful ••....  15 

New  Theory  of  International   Debts 17 

Great  Britain,  The  United  States  and  Germany 20 

The   Position  of   Great  Britain •  • 20 

The  Position  of  the  United  States 22 

Treaty  of  Versailles  and  Treaty  of  Berlin 23 

Cancellation  of  Allied  Debts  to  United  States 25 

The   Position   of   Germany 27 

Projects  for  an   International   Gold   Currency 28 

The  Vanderlip  Project- 29 

The  Hitchcock  Project 31 

The  Owen  Project 34 

Conclusion.  .                                                      ..••.,  37 


FOREWORD 


It  is  stated  in  the  public  press  that  President  Harding 
has  requested  the  submission  of  plans  for  the  collection  of 
the  foreign  debt  due  the  United  States.  In  all  discussions 
of  this  subject  economists  and  international  bankers  insist 
that  the  collection  of  the  foreign  debt  due  to  the  United 
States  is  inextricably  and  inevitably  interwoven  with  the 
settlement  of  German  reparations  and  the  re-adjustment  of 
foreign  exchange  on  a  gold  basis.  It  is  simpler  to  accept 
the  inter-relation  of  these  three  things  and  propose  a  plan 
to  cover  them  all  rather  than  controvert  the  arguments  in 
support  of  their  inter-dependence.  In  this  revised  form  the 
topics  entitled  "The  Position  of  the  United  States" ;  "Treaty 
of  Versailles  and  Treaty  of  Berlin"  and  "Cancellation  of  Allied 
Debts  to  the  United  States"  have  been  added  and  other  topics 
slightly  changed. 

The  plan  proposed  may  present  difficulties  but  it  is  con- 
crete, practical  and  constructive  and  the  history  of  the  repara- 
tions controversy  shows  that  it  will  be  acceptable  to  the 
Allies  and  to  Germany  if  the  various  propositions  which  they 
have  made  in  regard  to  the  subject  from  time  to  time  have 
been  made  in  good  faith. 

If  the  United  States  will  take  the  initiative  and  make  the 
first  moves  the  nations  of  Europe  will  necessarily  follow  the 
lead. 

FRANK  D.  PAVEY. 

32  Nassau  Street, 
New  York,  N.  Y. 
December  I5th,  1922 


PROPOSED  PLAN 

for 

Collection  of  the  Foreign  Debt  of  the  United  States 
Settlement  of  German  Reparations 

and 

Establishment  of  an  International  Gold  Currency 

1.  Create  a  Federal  Reserve  Foreign  Bank  of  the  United 
States    on   the   general   lines   proposed   by  (Senator   Robert  :L. 
Owen    of    Oklahoma    and    establish  a  branch  in   Berlin   with 
authority  to  issue  a  gold  secured  dollar  currency  in  Germany 
which  will  be  available  for  the  transaction  in  gold  of  either 
internal  or  external  trade  and  commerce.     This  will  provide 
Germany  with  a  gold  secured  currency  and  will  dispel   the 
popular  fiction  which  has  been   so  industriously  propagated 
that  Germany  is  unable  to  pay  reparations   for   damages  to 
the  Allies  by  reason  of  the  worthless  character  of  its  internal 
paper  currency. 

2.  Adopt  the  German  proposal  made  to  President  Hard- 
ing in  April,  1921,  in  which  the  German  government  offered  to 
pay  the  sum  of  50  billion  gold  marks  ($12,500,000,000)  to  the 
Allies  as  reparations  for  damages  and  in  addition  thereto  to 
pay  the  debts  of  the  Allies  to  the  United  States.     The  debts 
of  the  Allies  to  the  United  States  with  interest  from  January 
1,   1918  to  December  31,   1922,  amount  to  about   50  billion 
gold  marks  ($12,500,000,000).    This  makes  a  total  of  100  billion 
gold  marks  ($25,000,000,000)  which  the  German  government 
has  offered  to  pay  in  settlement  of  its  international  obligations 
due  to  the  World  War. 

3.  Require    the    establishment    by    Germany    of    a    system 
of  capital  taxation   sufficient  to  provide  guarantees   for  the 
payment  of  the  interest  and  amortization  of  the  principal  of 
the  foreign  debt  upon  a  basis  which  will  place  the  burden 
of  taxation  upon  capital — tangible  property —  and  not  upon 
labor  and  commerce  as  at  present. 

4.  Require    the    German    government    to     issue     external 
bonds  to  the  amount  of  100,000,000,000  gold  marks  ($25,000,- 
000,000)  and  deliver  these  bonds  to  the  Allies  in  final  settle- 
ment of  the  obligations  of  Germany  for  reparations  for  dam- 

3 


ages  to  the  Allies  and  the  obligations  of  the  Allies  to  the 
United  States  for  loans.  The  bonds  delivered  to  the  United 
States  will  be  endorsed  and  guaranteed  by  the  Allies  in  pro- 
portion to  their  respective  debts  to  the  United  States. 

5.  Require   the    payment    of    interest   and   amortization   of 
this  100  billions  of  gold  mark  bonds  to  be  secured  by  Ger- 
man  customs,  railroads,  and   other  governmental   properties 
and  in  addition  thereto  by  the  bonds,  stocks  and  other  obliga- 
tions   of    German   industries,  properties  and   public   utilities 
which  will  be  acquired  by  the  German  government  for  that 
purpose  by  the  exercise  of  the  power  of  capital  taxation. 

6.  Modify  the  law  for  the  refunding  of  the   foreign  debt 
of  the  United  States  so  as  to  provide  for  the  acceptance  of 
German  bonds  when  guaranteed  by  the  Allied  governments  in 
exchange  for  their  present  obligations.     These  bonds  should 
be  retained  in  the  Treasury  of  the  United  States  a  reasonable 
time  to  enable  the  Allied  governments  to  distribute  and  sell 
the  bonds  allotted  to  them  and  thereby  obtain  the  actual  funds 
for  the  payment  of  reparations  for  damages. 

If  the  German  bonds  allotted  to  the  Allies  are  properly 
secured  by  the  German  government  and  guaranteed  by  the 
respective  Allied  governments  they  can  be  sold  in  the  financial 
markets  of  the  world.  This  opinion  is  justified  by  the  amount 
and  diverse  character  of  foreign  securities  which  have  been 
placed  in  the  United  States  within  the  past  two  years. 

7.  The     balance     of     the    total     of     German     reparations 
(32,ooo,cxx),ooo  gold  marks)  can  be  settled  between  the  interested 
parties  in  view  of  the  willingness  of  England  to  cancel  the  debts 
of  the  other  Allies  in  consideration  of  the  commercial  benefits 
to  be  derived  by  England  from  the  reduction  of  German  repara- 
tions.    Any  differences  on  balance  between  the  Inter-Allied  debts 
•and  the  Allied  percentages  of  reparations  can  be  adjusted  between 
the  Allied  governments. 

8.  Establish  in  Berlin  an  Allied  Finance  Commission  with 
sufficient  power  and  control  of  German  finances  to  prevent  further 
fraudulent  issues   of  paper  currency  or  other   governmental 
obligations  and  to  make  the  other  necessary  and  proper  reforms 
in  German  financial  administration. 


The  justification  of  the  proposed  plan  is  found  in  the  histo- 
ry of  the  German  reparations  controversy. 


ARGUMENT 

The  German  Reparations  Farce 

The  final  collapse  of  the  value  of  the  German  paper  mark 
nearly  to  the  vanishing  point  may  clear  away  the  mists  in 
which  the  payment  of  German  reparations  for  damages  to 
the  Allies  has  been  enveloped.  The  problem  is  persistently 
treated  as  an  economical  and  political  question.  It  is  no  longer 
merely  a  question  of  economics  or  of  politics.  It  is  primarily 
the  direct  issue  whether  Germany  is  the  only  country  in  the 
world  which  in  the  conduct  of  its  international  affairs  can 
violate  all  rules  of  common  honesty  and  good  faith  and  at 
the  same  time  maintain  its  position  in  international  society. 

The  government  of  Germany  with  the  aid  of  English 
economists  and  international  bankers  has  successfully  ob- 
scured the  real  question  until  there  is  a  world  wide  belief  that 
Germany  is  the  victim  of  an  unreasonable  demand  for  the 
payment  of  an  impossible  amount  of  reparations.  Erroneous 
statements  of  fact  and  false  economic  principles  have  crept 
into  the  discussion  and  are  now  generally  accepted  as  correct. 

The  history  of  the  negotiations  for  the  determination  of  the 
amount  of  reparations  for  damages  to  be  paid  by  Germany  dis- 
closes that  the  Allies  have  shown  the  utmost  consideration  for 
Germany  not  only  from  the  ethical  point  of  view  of  justice  but 
also  from  the  practical  point  of  view  of  the  ability  of  Germany 
to  pay. 

The  final  and  definite  amount  of  the  damages  to  be  paid  by 
Germany  was  not  fixed  in  the  Treaty  of  Versailles.  At  the  Peace 
Conference  at  Paris  it  was  decided  that  Germany  would  not  be 
vasked  to  pay  the  costs  of  the  war  to  the  Allies  but  that  the  prin- 
cipal elements  of  the  bill  would  be  actual  material  damages,  plus 
separation  allowances  and  pensions  which  were  to  be  included  as 
damages  to  the  civilian  population.  The  American  experts  esti- 
mated the  amount  of  actual  material  damages  at  $15,000,000,000 
and  the  pensions  and  separation  allowances  at  another  $15,000,- 
000,000.  The  American  members  of  the  Commission  on  Capacity 
of  Germany  to  Pay  reported  in  favor  of  the  ability  of  Germany  to 
pay  a  capital  sum  of  $30,000,000,000 — $5,000,000,000  to  be  paid 

5 


before  May  i,  1921,  and  $25,cxx>,ooo,ooo  thereafter — if  proper 
steps  were  taken  to  conserve  Germany's  assets.  This  makes  a 
total  of  120,000,000,000  gold  marks  which  in  the  opinion  of  the 
American  experts  at  the  Peace  Conference  at  Paris  Germany  was 
able  to  pay  and  ought  to  be  made  to  pay. 

The  American  delegation  wanted  to  have  this  or  some  other 
fixed  sum  inserted  in  the  text  of  the  Treaty  of  Versailles,  but  the 
French  and  British  delegations  were  not  yet  ready  to  accept  any 
small  amount  and  the  terms  of  the  Treaty  directed  the  payment  of 
certain  minimum  amounts  and  then  provided  for  the  establish- 
ment of  the  Reparations  Commission  with  authority  to  fix  the 
final  amount  on  or  before  May  i,  1921,  subject  to  subsequent  re- 
consideration and  modification.  Conferences  on  the  subject  were 
held  at  Hythe  on  May  16,  1920;  at  Bologne  on  June  21-22,  1920; 
at  Brussels  on  July  2,  1920;  and  at  Spa  on  July  17,  1920.  At  a 
subsequent  conference  at  Paris  on  January  27,  1921,  the  allied 
premiers  approved  reparations  figures  amounting  to  226,000,000,- 
ooo  gold  marks  payable  in  annual  installments,  plus  an  annual  tax 
of  12%  on  her  total  exports. 

These  proposals  were  submitted  to  the  German  government 
which  on  March  i,  1921,  in  London  offered  as  counter  proposals 
to  pay  50,000,000,000  gold  marks  from  which  were  to  be  deducted 
20,000,000,000  gold  marks  which  the  German  government  esti- 
mated to  be  the  value  of  property  already  surrendered.  Towards 
the  end  of  April  1921  these  counter  proposals  were  submitted  in 
a  modified  form  to  President  Harding  for  transmission  to  the 
Allies.  In  addition  to  the  50,000,000,000  gold  marks  proposed  to 
be  paid  to  the  Allies  the  German  government  offered  to  assume 
and  pay  the  Allied  debts  to  the  United  States  which  then  amounted 
to  approximately  46,000,000,000  gold  marks  ($11,500,000,000). 
This  sum  added  to  50,000,000,000  gold  marks  to  be  paid  to  the 
Allies  makes  a  total  of  96,000,000,000  gold  marks  ($24,000,000,- 
ooo)  which  the  German  government  in  April,  1921,  offered  to  pay 
and  impliedly  represented  that  it  was  able  to  pay.  This  amount 
was  almost  the  same  as  the  total  German  war  loans  floated  during 
the  war  between  September  1914  and  September  1918 — viz 
98,563,000,000  gold  marks  ($24,640,000,000). 

On  May  5,  1921,  final  proposals  based  upon  the  German  coun- 
ter proposals  as  a  minimum  were  submitted  by  Mr.  Lloyd  George 
and  accepted  on  May  10,  1921,  by  the  German  Reichstag.  The 
final  proposals  provided  for  the  issue  of  three  series  of  bonds. 
The  first  bonds  (Series  A)  amounted  to  12,000,000,000  gold 


marks  ($3,000,000,000)  arid  were  to  be  delivered  by  July  I,  1921. 
The  second  bonds  (Series  B)  amounted  to  38,000,000,000  gold 
marks  ($9,500,000,000)  and  were  to  be  delivered  by  November  I, 
1921.  These  two  series  of  bonds  amount  to  50,000,000,000  gold 
marks  ($12,500,000,000)  which  is  exactly  the  amount  offered  by 
Germany  to  the  Allies  in  the  proposition  submitted  to  President 
Harding  in  April  1921.  The  third  bonds  (Series  C)  estimated  at 
82,000,000,000  gold  marks  ($20,500,000,000)  were  to  be  delivered 
by  November  i,  1921,  with  the  important  reservation  that  the 
Reparations  Commission  was  to  issue  these  bonds  to  the  Allies 
only  as  and  when  it  was  satisfied  that  the  payments  to  be  made 
under  the  agreement  were  adequate  to  provide  for  the  payment  of 
interest  and  amortization  of  the  principal. 

The  formal  and  definite  acceptance  of  these  final  terms  was 
no  more  conclusive  on  the  minds  and  consciences  of  the  German 
statesmen  than  the  acceptance  of  any  previous  international  obli- 
gations. The  backs  of  the  negotiators  were  no  more  than  turned 
to  each  other  when  the  German  government  renewed  its  usual 
demands  for  modifications.  The  new  demands  were  directed  to 
the  end  of  securing  reductions  in  the  amounts  to  be  paid  in  cash. 
After  months  of  discussion  the  French  Minister  of  the  Liberated 
Regions  (Loucheur)  and  the  German  Minister  of  Reconstruction 
(Rathenau)  reached  an  agreement  at  Wiesbaden  on  October  6, 
1921,  for  liberal  payments  in  kind. 

By  January  1922  Germany  was  trying  to  beg  off  from  all  cash 
payments  in  1922  with  the  usual  fulsome  promises  of  increased 
taxes  and  internal  financial  reforms.  The  Reparations  Commis- 
sion reduced  the  amount  payable  in  cash  for  1922  and  agreed  that 
the  balance  could  be  paid  in  materials  and  supplies.  These  con- 
cessions were  accompanied  by  reasonable  requirements  in  regard 
to  the  internal  administration  of  the  German  government  which 
were  not  only  just  but  also  necessary  and  proper  in  view  of  the 
reckless  and  dishonest  conduct  of  its  financial  affairs  by  the  Ger- 
man government. 

On  March  21,  1922,  the  Allied  Commission  on  Reparations 
in  session  at  Paris  sent  to  the  German  government  at  Berlin 
two  communications  in  which  they  announced  the  modified 
terms  of  reparations  for  damages  to  be  paid  by  Germany  to  the 
Allies  during  the  year  1922  and  stated  the  conditions  upon 
which  the  modified  terms  were  granted.  The  announcement 
of  these  terms  and  conditions  "fell  like  a  bombshell  in  the 
official  quarters  in  Wilhelmstrasse  and  in  the  Reichstag  and 
created  anger  and  dismay". 

7 


The  modified  terms  of  payment  fixed  by  the  Reparations 
Commission  were  less  onerous  than  the  original  terms  which 
had  been  accepted  by  the  Reichstag  and  incorporated  in  sol- 
emn agreements  by  the  German  government.  Therefore  the 
anger  and  dismay  in  the  Reichstag  and  the  surprise  in  official 
quarters  really  arose  from  the  fact  that  neither  the  Reichstag 
nor  the  German  government  ever  expected  to  fulfil  their 
agreements.  They  were  angered  and  dismayed  at  the  failure 
of  a  careful  campaign  to  secure  the  entire  release  of  Germany 
from  the  payment  of  reparations  for  damages  to  the  Allies. 

In  this  campaign  the  major  premise  of  the  argument  has 
been  the  assertion  and  assumption  that  the  economic  restora- 
tion of  Germany  is  essential  to  the  financial  and  industrial 
reconstruction  of  Europe  and  the  rest  of  the  world.  The 
minor  premise  is  the  assertion  and  assumption  that  the 
economic  restoration  of  Germany  is  impossible  if  Germany  is 
forced  to  pay  reparations  for  damages  to  the  Allies.  From 
these  premises  the  conclusion  is  drawn  that  the  revision  of 
the  Treaty  of  Versailles  is  necessary  on  lines  which  will 
relieve  Germany  of  her  obligations  to  pay  reparations  to  the 
Allies  for  the  wanton  damages  inflicted  upon  them  by  the 
armies  and  navies  of  Germany  during  the  World  War.  As 
an  alternative  there  is  presented  the  threat  of  the  bankruptcy  of 
Germany  and  the  woeful  consequences  of  that  direful  event  to 
Europe  and  to  the  rest  of  the  world. 

The  fallacy  of  the  argument  lies  in  the  fact  that  the  premises 
are  wrong  and  necessarily  lead  to  false  conclusions.  The  payment 
by  Germany  of  reparations  for  damages  to  the  Allies  will  not 
prevent  the  economic  restoration  of  Germany.  The  danger  to  the 
economic  equilibrium  of  Europe  of  the  so-called  "bankruptcy 
of  Germany"  is  exaggerated.  The  release  of  Germany  from  the 
payment  of  reparations  for  damages  to  the  Allies  will  not  restore 
the  economic  equilibrium  of  Europe  nor  will  it  obviate  the  econo- 
mic consequences  of  the  vicious  financial  policy  pursued  by 
Germany  subsequent  to  the  World  War. 

The  Impending  Bankruptcy  of  Germany 

The  current  literature  in  regard  to  the  financial  and  economic 
restoration  of  Germany  is  filled  with  polite  financial  phrases 
which  obscure  the  truth. 

The  German  government  and  the  German  people  engaged 
in  a  grand  speculative  enterprise  for  the  subjugation  of 

8 


Europe  and  the  rest  of  the  world.  In  its  mad  career  to 
establish  itself  as  a  super-government  Germany  inflicted 
enormous  losses  upon  the  people  of  adjacent  countries.  Now 
that  the  enterprise  has  failed,  Germany  seeks  to  escape  from 
the  rightful  consequences  of  her  wrongful  acts  by  the  plea 
of  inability  to  pay  reparations  for  damages.  The  predic- 
tion is  made  that  if  Germany  is  compelled  to  fulfill  her  obliga- 
tions under  the  Treaty  of  Versailles  she  will  go  into  bankrupt- 
cy. This  is  always  mentioned  as  a  frightful  fate  that  ought 
not  to  be  forced  upon  any  people  or  any  government. 

As  a  matter  of  fact  bankruptcy  and  the  repudiation  of 
debts — partial  or  total — are  recognized  by  the  entire  civilized 
world  as  the  necessary  and  proper  procedure  for  the  settle- 
ment of  disastrous  enterprises.  In  the  case  of  private  corpo- 
rations the  process  is  usually  designated  by  the  terms  "re- 
organization" or  "recapitalization".  In  the  case  of  govern- 
mental debts  the  term  "readjustment"  is  frequently  employed 
and  one  recent  writer  has  made  use  of  the  still  more  vague 
phrase  "compression  of  public  debts".  The  "re-valuation"1 
of  currencies  and  the  "stabilization  of  the  mark"  are  similar 
phrases.  No  matter  by  what  euphonious  names  they  are 
called,  all  these  processes  have  one  element  in  common.  They 
are  all  partial  or  total  repudiation  of  debts. 

This  principle  of  bankruptcy — of  the  partial  or  total  re- 
pudiation of  individual  and  corporate  debts — is  recognized 
by  American  financiers  as  beneficial  in  its  economic  effects 
and  is  enforced  by  American  courts  as  just  in  its  legal  as- 
pects. The  courts  appoint  the  representatives  of  the  creditors 
to  be  receivers  of  the  property  and  revenues  of  the  enterprise 
which  has  failed.  The  assets  which  are  left  from  the  wreck 
of  false  hopes  and  bad  management  are  applied  to  the  pay- 
ment of  those  creditors  who  in  law  or  in  equity  are  entitled 
to  a  preference. 

In  many  cases  the  management  is  bankrupt  but  the  busi- 
ness is  not.  The  failure  is  due  to  the  incompetent  or  dishonest 
conduct  of  the  business  by  the  directors  of  the  enterprise. 
The  business — the  "plant" — with  its  capacity  for  profitable 
production  is  unimpaired.  The  shareholders  and  the  in- 
competent and  dishonest  managers  whose  direction  has  ended 
in  disaster  lose  their  interests  in  the  enterprise.  The  business 
with  its  productive  capacity  passes  into  the  control  of  the 
creditors. 

9 


This  is  precisely  the  situation  in  Germany.  A  clear  distinction 
is  to  be  drawn  between  the  German  government  and  the  German 
people — the  German  industrial  and  commercial  plant — as  an 
economic  unit.  There  need  be  no  undue  anxiety  as  to  the  financial 
and  economic  consequences  to  the  rest  of  the  world  if  the  govern- 
ment of  Germany  goes  into  bankruptcy.  The  government  of  Ger- 
many  is  bankrupt  now. 

In  all  periods  of  financial  distress  the  columns  of  the  daily 
journals  are  filled  with  the  discussion  of  plans  for  the  "reorgani- 
zation" or  "re-capitalization"  of  corporations  which  are  about  to 
pass  into  the  control  of  their  creditors.  In  many  cases  rival  plans 
of  reorganization  are  vigorously  presented  and  acrimoniously  dis- 
cussed and  appeals  are  made  to  creditors  to  support  one  or  the 
other  of  the  different  plans  of  reorganization.  The  real  meaning 
of  such  contests  between  rival  committees  with  different  plans  of 
reorganization  is  that  they  are  seeking  to  promote  the  interests  of 
certain  classes  of  creditors  at  the  expense  of  other  classes  of 
creditors.  The  key  to  every  such  controversy  is  to  ascertain  what 
classes  of  creditors  are  to  be  the  victims  and  what  classes  of 
creditors  are  to  be  the  beneficiaries  of  the  proposed  reorganization. 

The  discussion  of  the  plans  proposed  for  the  "economic  resto- 
ration of  Germany"  present  an  absolutely  analogous  situation. 
The  domestic  creditors  of  Germany  and  their  affiliated  interests 
in  Great  Britain  and  the  United  States  seek  by  an  appeal  to  public 
sentiment  on  behalf  of  the  restoration  of  the  "economic  equili- 
brium O'f  Europe"  to  make  themselves  the  beneficiaries  and  the 
foreign  creditors  the  victims  of  the  industrial  and  financial  re- 
organization of  Germany. 

The  facts  lead  inevitably  to  the  conclusion  that  Germany — the 
people — the  plant — the  business — are  able  to  pay  the  amount  fixed 
as  reparations  for  damages  to  the  Allies  and  with  equal  force  lead 
to  the  further  conclusion  that  the  German  government  has  pursued 
the  course  of  an  improvident  and  dishonest  debtor  wilfully  and 
deliberately  seeking  to  evade  the  payment  of  just  foreign  debts 
for  reparations  of  damages  in  order  to  pay  domestic  debts. 

The  Dishonesty  of  the  German  Government 

The  facts  sustain  the  inevitable  conclusion  that  the  government 
of  Germany  has  wilfully  and  intentionally  pursued  a  course  since 
the  Armistice  which  would  result  in  official  bankruptcy  in  order 
to  escape  from  the  payment  of  reparations  for  damages  to  the 
Allies. 

10 


One  of  the  logical  presumptions  of  jurisprudence  is  that  intel- 
ligent men  intend  the  reasonable  consequences  of  their  own  acts. 
Judged  by  this  standard  the  men  in  control  of  the  government  of 
Germany  cannot  escape  the  charge  of  dishonesty  in  their  admi- 
nistration of  the  financial  affairs  of  Germany.  By  "dishonesty" 
is  not  meant  any  petty  personal  profits  from  the  transactions  of 
the  Government  or  peculations  from  its  funds.  The  term  is  used 
to  signify  the  wilful  and  deliberate  intention  of  a  debtor  to  defeat 
the  claims  of  foreign  creditors  in  order  ultimately  to  benefit 
domestic  creditors. 

After  the  commencement  of  the  World  War  the  government 
of  Germany  did  not  at  once  adopt  any  general  system  of  war  taxes 
to  provide  funds  for  the  conduct  of  the  war.  It  expected  to  pay 
the  costs  of  the  war  from  the  indemnities  which  it  intended  to 
collect  from  Belgium,  France  and  Russia  at  the  conclusion  of  a 
short  decisive  and  victorious  campaign.  When  this  promise  to 
the  German  people  failed  the  Government  had  not  the  courage  to 
adopt  at  once  a  comprehensive  and  complete  system  of  taxation 
for  war  purposes  and  resorted  to  the  issue  of  bonds  and  bank- 
notes to  pay  the  expenses  of  its  disastrous  enterprise. 

Subsequent  to  the  Armistice  the  German  government  pursued 
the  course  of  an  improvident  and  dishonest  debtor  by  the  issue  of 
enormous  amounts  of  additional  obligations.  The  following 
figures  in  regard  to  the  issues  of  paper  marks  to  circulate  as 
money  tell  an  eloquent  story  of  disastrous  financial  management. 

German  Paper  Currency  Issues  Since  the  Armistice 

1918 November  6 Marks  16,959,260,000 

1918 December  31 "      22,206,000,000 

1919 December  31  "       35.698,359,000 

1920 December  31  "      68,805,008,000 

1921 December  31  "     1 13,458,889,000 

1922 October  31   "     468,875,571,000 

1922 November  30 "     753,504,862,000 

The  reckless  issue  of  paper  money  has  constituted  a  fraud  on 
the  common  people  of  Germany.  The  employers  could  pay  their 
laborers  in  paper  marks  which  depreciated  in  value  faster  than  the 
laborers  could  secure  corresponding  increases  in  wages.  The  sys- 
tem worked  to  the  advantage  of  the  manufacturers  and  exporters 
who  sold  products  and  established  international  credits  in  foreign 
countries  on  a  gold  basis.  The  polite  financiers  and  economists 
designate  this  process  by  the  euphemistic  phrase  "flight  of  capital.'* 

11 


In  the  prosaic  affairs  of  an  insolvent  corporation  the  legal  phrase 
for  the  same  process  would  be  the  fraudulent  withdrawal  and 
concealment  of  assets  by  the  shareholders. 

The  leaders  of  the  German  government  are  men  of  education 
and  experience  in  business  and  public  affairs.  They  cannot  have 
been  ignorant  of  what  they  were  doing  and  what  they  are  still 
doing.  They  have  followed  the  path  of  political  expediency  at  the 
sacrifice  of  commercial  integrity  and  will  continue  to  follow  it 
until  they  are  brought  to  book  by  force. 

In  the  German  budget  for  1920  is  found  an  item  of  131,000,- 
000,000  marks  for  compensation  to  German  citizens  arising  out 
of  the  Peace  Treaty.  No  German  statesman  has  proposed  that 
these  losses  of  German  citizens  should  not  be  paid.  No  German 
banker  has  proposed  that  these  claims  should  be  cancelled  in  order 
to  promote  the  economic  restoration  of  Germany.  No  English 
economist  has  written  a  book  to  demonstrate  that  if  German  in- 
dustry is  stimulated  to  the  degree  of  activity  necessary  to  pay 
these  reparations  the  recovery  of  the  "economic  equilibrium  of 
Europe"  will  be  retarded. 

Cows  killed  and  stolen  horses,  burned  stables  and  cottages 
destroyed  are  quite  as  important  items  in  the  economic  life  of 
Belgian,  French,  Italian,  Serbian  and  Roumanian  peasants  as  are 
surrendered  ships  in  the  economic  life  of  the  German  shareholders 
of  a  great  steamship  company.  The  government  of  Germany 
proposes  to  pay  131,000,000,000  marks  to  German  capitalists  in 
reparation  of  damages  arising  out  of  the  war  but  proclaims  its 
inability  to  pay  reparations  for  damages  to  foreign  peasants  whose 
"economic  equilibrium"  was  destroyed  by  German  armies. 

The  course  of  the  German  government  is  in  striking  contrast 
to  that  of  the  government  of  France.  Germany  which  suffered 
no  material  injury  from  the  war  has  wilfully  and  deliberately 
destroyed  the  value  of  her  currency  since  the  Armistice.  France 
whose  provinces  and  cities  were  laid  waste  and  mines  and  indus- 
tries destroyed  has  so  demonstrated  her  financial  good  faith  and 
physical  powers  of  recuperation  that  her  currency  has  commenced 
to  recover  its  normal  value  and  her  credit  has  enabled  her  cities 
and  industries  to  make  large  loans  in  the  market  of  the  United 
States. 

Bankruptcy  the  Best  Solution 

No  greater  benefit  could  come  to  the  German  people  than  to 
put  the  German  government  into  bankruptcy — repudiate  the  war 

12 


bonds  and  paper  money  which  it  has  issued — and  to  start  the 
German  plant — the  German  people  with  their  productive  capacity 
— in  business  again  with  the  definite  purpose  in  view  of  paying 
their  just  debts  to  the  people  whom  they  have  wronged. 

Many  persons  who  now  consider  themselves  rich  by  reason 
of  their  possession  of  large  promises  of  the  German  govern- 
ment to  pay  would  find  themselves  poor.  Many  individuals 
would  go  into  bankruptcy  but  probably  not  more  than  will 
meet  that  fate  if  the  German  government  seriously  attempts 
to  restore  the  paper  mark  to  its  par  value  in  gold.  Many 
parasites  on  the  public  funds  would  be  compelled  to  go  to 
work  and  earn  an  honest  living.  These  results  would  be 
disagreeable  for  them  but  wholesome  in  their  general  economic 
effects.  The  productive  capacity  of  the  German  industrial 
and  commercial  plant  as  an  economic  unit  would  be  un- 
impaired. 

Under  a  just  system  of  taxation  and  an  honest  system 
of  finance  the  German  people  who  have  been  unharmed  in 
their  property  and  industry  could  pay  the  damages  inflicted 
by  them  on  their  neighbors  in  the  pursuit  of  an  unjust  and 
unlawful  war.  That  result  is  one  which  the  Allies  have  the 
right  to  ask  and  the  right  to  enforce.  The  United  States 
aided  the  Allies  to  win  the  war  and  ought  to  help  them  hold 
the  results  of  victory.  Any  other  attitude  puts  the  people 
and  the  government  of  the  United  States  in  the  position  of  a 
dupe  to  the  duplicity  and  dishonesty  of  Germany. 

The  practical  method  to  bring  this  result  about  is  to  ac- 
cept the  declaration  of  the  German  government  that  it  can- 
not pay  its  obligations  and  to  put  a  Financial  Commission 
of  the  Allies  in  Berlin  as  receiver  in  charge  of  the  receipt 
and  administration  of  the  public  revenues  of  Germany  and 
in  control  of  the  banks  authorized  to  issue  bank  notes  to 
circulate  as  money.  The  Financial  Commission  should  be 
supported  by  a  sufficient  military  force  to  compel  respect  and 
obedience  to  its  orders.  We  have  a  sufficient  German  prece- 
dent for  this  in  the  German  military  occupation  of  France 
in  1870-1871  pending  the  final  payment  by  France  of  the  Ger- 
man war  indemnity.  France  did  not  whine  and  plead  poverty 
and  try  to  create  a  maudlin  sympathy  for  herself.  She  went 
to  work  and  paid  the  German  war  indemnity  with  a  speed 
that  astonished  the  world. 


13 


Repudiation  of  the  German  War  Debts 

There  need  be  no  false  sentiment  in  respect  to  the  repudia- 
tion of  the  German  war  debts.  The  rule  of  law  is  well  re- 
cognized in  the  jurisprudence  of  the  United  States  that  gov- 
ernmental obligations  issued  in  aid  of  an  unlawful  enterprise 
will  not  be  paid.  The  rule  is  applied  even  at  the  expense  of 
innocent  investors  who  have  purchased  the  obligations  in 
good  faith.  No  distinction  between  nationals  and  foreigners 
is  recognized  in  the  enforcement  of  the  rule.  They  are  all 
treated  on  the  same  plane  of  equality  before  the  law  which 
refuses  to  recognize  the  validity  of  a  public  obligation  issued 
in  aid  of  an  unlawful  purpose  no  matter  in  whose  hands  the 
obligation  may  be  found. 

The  rule  is  generally  applied  to  the  bonds  and  notes  of 
municipalities  and  states.  It  was  applied  on  a  large  scale 
at  the  close  of  the  Civil  War  in  respect  to  the  bonds  and 
notes  of  the  Confederate  government  and  the  bonds  and  notes 
of  the  Southern  States  issued  in  aid  of  the  Confederate  govern- 
ment. None  were  permitted  to  be  paid.  This  result  was  the 
logical  sequence  of  the  origin  and  end  of  the  struggle. 

In  1860  the  United  States  was  in  a  state  of  perfect  "eco- 
nomic equilibrium".  This  economic  equilibrium  was  founded 
in  part  on  the  institution  of  human  slavery.  The  South  be- 
lieved that  human  slavery  was  right  and  the  North  believed 
it  was  wrong.  The  South  believed  that  it  had  the  right  to 
withdraw  from  the  Union  of  States  in  order  to  protect  this 
economic  institution.  The  North  denied  this  right  and  the 
''irrepressible  conflict"  between  human  freedom  and  human 
slavery  led  to  four  years  of  civil  war. 

The  technical  excuse  for  the  commencement  of  the  Civil 
War  was  the  disputed  right  of  the  Southern  States  to  with- 
draw from  the  Union  and  establish  an  independent  govern- 
ment. The  fundamental  cause  of  the  Civil  War  was  the  peril 
in  which  the  institution  of  human  slavery  was  placed  as  a 
result  of  the  expansion  and  extension  in  the  North  of  ideas 
of  personal  liberty  and  human  equality  before  the  law. 

At  the  erid  of  the  Civil  War  the  North  abolished  the  insti- 
tution of  human  slavery  without  compensation  to  the  owners 
for  the  loss  of  their  slaves  or  other  property;  denied  the  right 
of  the  holders  of  confederate  bonds  or  notes  to  receive  pay- 
ment of  the  Confederate  obligations  and  forced  the  people 

14 


and  property  of  the  South  to  return  to  the  Union  and  bear 
their  proportionate  share  of  Federal  taxation  for  the  payment 
of  the  war  debt  of  the  North.  Northern  troops  remained  in 
the  capitals  of  the  Southern  States  until  these  economic  read- 
justments were  established  in  the  jurisprudence  of  the  country. 

This  citation  of  historical  facts  is  not  intended  as  an  ex- 
pression of  opinion  on  the  right  of  the  Southern  States  to 
withdraw  from  the  Union  or  to  maintain  the  institution  of 
human  slavery.  The  point  to  the  citation  of  these  facts  in 
this  argument  is  that  no  other  settlement  of  the  financial 
and  economic  questions  involved  was  consistent  with  the  acts 
and  declarations  of  the  Northern  States  in  the  prosecution 
of  the  war  on  the  Southern  States.  Every  economic  argument 
in  favor  of  the  release  of  Germany  from  the  payment  of 
reparations  for  damages  to  the  Allies  could  have  been  made 
in  favor  of  the  restoration  of  human  slavery  as  an  economic 
institution  but  there  was  no  compromise  with  permanent 
principles  for  the  sake  of  temporary  economic  equilibrium. 

This  rule  of  national  jurisprudence  is  a  salutary  one  and 
ought  to  be  recognized  and  enforced  in  international  affairs. 
The  only  question  ought  to  be  one  of  fact, — whether  the  Ger- 
man bonds  and  notes  were  issued  in  aid  of  an  unjust  and  un- 
lawful war.  That  question  so  far  as  the  World  War  is  con- 
cerned is  no  longer  open  to  argument.  It  has  been  settled 
by  the  facts  and  by  the  acts  and  admissions  of  the  parties. 

The  World  War  Was  Unjust  and  Unlawful 

The  economic  equilibrium  of  Europe  prior  to  the  World  War 
was  based  upon  institutions  which  were  no  better  than  human 
slavery.  The  common  people  were  taxed  to  maintain  privi- 
leged classes — imperial,  royal,  aristocratic  and  military.  The 
technical  excuse  for  the  World  War  was  the  assassination  of 
an  arch-duke  and  the  right  of  Austria-Hungary  to  interfere 
in  the  internal  administration  of  Serbia.  The  fundamental 
cause  of  the  World  War  was  the  peril  in  which  the  privi- 
leged institutions  of  economic  inequality  and  political  and 
social  superiority  were  placed  by  reason  of  the  rising  tide  of 
democratic  ideas  in  Europe.  The  war  was  begun  and  waged 
in  order  to  protect  and  perpetuate  these  privileged  institu- 
tions and  the  conduct  of  the  war  was  consistent  with  its 
origin. 

15 


Germany  commenced  the  war  by  the  ruthless  and  inex- 
cusable invasion  of  Belgium  and  violated  the  rights  in  time 
of  war  of  friend  and  foe  alike.  The  resolution  of  Congress 
declared  that  a  state  of  war  had  been  forced  upon  the  United 
States  by  repeated  and  unwarranted  acts  of  war  on  the  part 
of  Germany.  (Resolution  of  Congress — April  6,  1917). 

In  the  Treaty  of  Versailles  Germany  admitted  her  guilt: 

"The  Allied  and  Associated  Governments  affirm  and  Ger- 
many accepts  the  responsibility  of  Germany  and  her  Allies 
for  causing  all  the  loss  and  damage  to  which  the  Allied  and 
Associated  Governments  and  their  nationals  have  been  sub- 
jected as  a  consequence  of  the  war  imposed  upon  them  by 
the  aggression  of  Germany  and  her  Allies."  (Treaty  of  Ver- 
sailles—Article 231.) 

Under  these  circumstances,  the  Treaty  of  Versailles  ought 
to  have  contained  a  prohibition  of  the  payment  of  any  part 
of  the  debt  created  by  Germany  for  the  prosecution  of  the 
war.  This  provision  in  the  treaty  of  peace  would  have  been 
just  in  principle  and  wise  in  its  economic  effects.  Practically 
the  entire  German  war  debt  was  held  by  the  German  people 
and  the  German  profiteers  in  neutral  countries.  The  losses 
would  have  fallen  on  the  shareholders  in  the  enterprise  who 
expected  to  reap  the  profits  of  the  grand  adventure.  The 
industry  and  commerce  of  Germany  would  have  been  relieved 
from  a  great  burden  of  taxation  the  proceeds  of  which  ought 
to  be  devoted  to  the  payment  of  reparations  for  damages  to 
the  Allies. 

This  ought  still  to  be  done.  The  definite  repudiation  of 
this  war  debt  will  facilitate  the  "balancing  of  the  budget" 
of  Germany  and  tend  to  restore  the  "economic  equilibrium 
of  Europe"  which  so  many  financiers  and  economists  consider 
of  more  importance  than  the  establishment  of  political  liberty 
and  civil  equality  and  freedom  of  thought  and  opinion  un- 
controlled by  a  military  caste  or  hereditary  aristocracy.  The 
German  statesmen  and  financiers  never  propose  this  remedy 
for  the  economic  ailments  of  Germany.  They  prefer  to  begin 
the  "economic  restoration  of  Germany"  by  the  repudiation 
of  the  debt  due  to  the  Allies  for  reparation  of  the  wanton 
damages  caused  by  their  armies  and  navies  in  the  prosecu- 
tion of  an  unjust  and  unlawful  war. 

The  proposed  revision  of  the  Treaty  of  Versailles  so  as 
to  release  Germany  from  the  payment  of  reparations  for 

16 


damages  to  the  Allies  outrages  every  sentiment  of  justice. 
Many  of  its  advocates  admit  this  injustice  and  fall  back  upon 
the  alleged  inability  of  Germany  to  pay  and  the  adverse  effect 
on  the  "economic  equilibrium  of  Europe"  of  the  international 
payment  of  the  large  amounts  fixed  as  reparations  for  damages. 


New  Theory  of  International  Debts 

In  the  controversy  over  the  payment  by  Germany  of 
reparations  for  damages  to  the  Allies  the  economic  theory 
has  been  evolved  that  if  an  international  debt  is  sufficiently 
large  its  payment  by  the  debtor  injures  the  creditor.  The 
argument  runs  as  follows : 

All  international  payments  must  be  made  in  gold  or  in 
international  credits  payable  in  gold  which  are  acceptable 
to  the  foreign  creditors.  Germany  does  not  produce  gold 
and  has  not  sufficient  gold  with  which  to  pay  the  repara- 
tions for  damages;  has  no  large  foreign  investments  which 
can  be  converted  into  gold;  and,  therefore,  can  procure  inter- 
national credits  payable  in  gold  only  to  the  amount  of  the 
excess  of  her  exports  of  merchandise  over  her  imports  of 
merchandise.  Hence,  to  procure  international  credits  payable 
in  gold,  Germany  must  stimulate  her  exports  of  merchandise 
and  sell  her  manufactured  products  in  the  markets  of  the 
world  in  fierce  competition  with  the  products  of  the  Allies. 
These  premises  and  arguments  lead  to  the  apparent  con- 
clusion that  the  Allies  will  be  injured  more  in  their  industries 
and  commerce  by  the  fierce  German  competition  in  the 
markets  of  the  world  than  they  will  be  benefited  by  the 
amounts  paid  in  reparation  of  damages. 

There  are  two  sufficient  answers  to  this  theory.  The 
first  answer  is  that  the  release  of  Germany  from  the  payment 
of  reparations  for  damages  to  the  Allies  will  not  eliminate 
the  fierce  competition  of  her  products  from  the  markets  of 
the  world.  Prior  to  the  war,  German  products  had  already 
entered  into  fierce  competition  in  the  markets  of  the  world 
with  the  products  of  the  Allies.  German  commerce  was  con- 
ducted in  the  same  fierce  and  brutal  manner  in  which  the 
German  war  was  waged.  The  Allies  must  expect  to  meet  the 
same  German  qualities  in  future  in  their  international  trade 
and  commerce. 

17 


The  second  answer  is  that  the  exportation  of  merchandise  is 
not  the  only  means  by  which  Germany  can  secure  international 
credits  payable  in  gold  and  available  for  the  payment  of  repara- 
tions for  damages  to  the  Allies.  The  same  result  can  be  accom- 
plished by  the  exportation  of  German  capital  in  the  form  of  shares 
and  bonds  of  German  industries  properties  and  public  utilities. 
The  organization  of  modern  corporations  and  trust  companies 
provides  the  legal  machinery  necessary  for  this  exportation  of 
capital  either  by  the  direct  sale  of  the  German  shares  and  bonds 
to  the  foreign  investors  or  by  a  pledge  of  the  German  shares  and 
.bonds  as  security  for  obligations  of  the  German  government. 
The  principles  and  legal  forms  of  both  transactions  are  well  known 
in  financial  circles  in  Europe  and  America. 

Dutch  shares  of  the  Royal  Dutch  Company  payable  in  guilders ; 
English  shares  of  the  " Shell''  Transport  and  Trading  Company, 
Ltd.,  payable  in  pounds  sterling;  English  shares  of  Rand  Mines, 
Ltd.,  payable  in  pounds  sterling  and  English  shares  of  the  De 
Beers  Consolidated  Mines,  Ltd.,  payable  in  pounds  sterling  are 
instances  of  the  pledge  of  foreign  shares  to  secure  American  cer- 
tificates payable  in  dollars  for  sale  in  the  American  market. 

This  form  of  "investment  trust"  is  equally  well  known  in 
Germany  where  it  is  used  at  the  present  time  to  assist  in  the  "flight 
of  capital"  from  Germany  into  foreign  countries  where  it  will  be 
comparatively  free  from  the  dangers  of  capital  taxation  or  com- 
pulsory loans  to  aid  in  the  payment  of  reparations  for  damages  to 
the  Allies.  The  "Bank  fur  Industriewerte  Actien-Gesellschaft" 
(called  "B.  I.  A.")  has  been  organized  by  four  great  German 
banks  to  acquire  the  control  by  ownership  of  stock  of  German  in- 
dustrial corporations  engaged  in  practically  every  industry  in  Ger- 
many such  as  iron  and  steel,  coal  and  coke,  chemicals,  railway 
equipment  and  construction,  shipbuilding,  turbines,  commercial 
airplanes,  paper,  glass,  metals  and  linens.  The  shares  of  stock 
are  held  by  the  four  banks  as  trustees  as  security  for  bonds  of 
the  "B.  I.  A."  which  are  offered  for  sale  in  large  amounts  in 
Switzerland,  Holland,  Spain,  Scandinavia  and  the  United  States. 

The  proposal  to  compel  Germany  to  expropriate  the  stock  and 
bonds  of  her  great  industries  properties  and  public  utilities  and 
sell  or  pledge  them  in  foreign  countries  in  order  to  provide  inter- 
national credits  with  which  to  pay  reparations  for  damages  to  the 
Allies  is  no  greater  hardship  upon  Germany  than  that  imposed 
upon  the  Allies  to  enable  them  to  defend  themselves  against  her 
aggressions. 

18 


All  Allied  governments  were  forced  by  the  necessities  of  the 
war  to  resort  to  drastic  measures  of  expropriation  or  control  of 
property  in  one  form  or  another.  In  England  the  government 
was  forced  to  "mobilize"  the  American  securities  held  in  Great 
Britain  in  order  to  secure  international  credits  in  the  United 
States.  At  first  the  holders  of  specified  American  securities  were 
requested  to  sell  or  lend  them  to  the  Treasury  on  stated  terms. 
As  the  request  did  not  produce  American  securities  in  sufficient 
volume  the  Treasury  resorted  to  coercion  and  levied  a  special  tax 
upon  the  income  derived  from  all  issues  which  were  eligible  for 
the  purpose  and  which  were  not  surrendered.  Later  the  Treasury 
was  empowered  to  commandeer  eligible  securities  and  to  place 
restrictions  upon  the  holders  in  reference  to  their  sale  and  trans- 
fer. The  government  of  France  followed  a  similar  procedure. 

In  both  countries  the  system  was  extended  to  include  eligible 
securities  payable  in  any  national  standards  of  value  which  were 
available  for  the  purpose  of  establishing  international  credits  with 
which  to  pay  their  foreign  war  costs.  The  governments  first  ac- 
quired the  securities  by  the  exercise  of  the  sovereign  power  of 
expropriation  or  capital  taxation  and  then  pledged  the  securities 
thus  acquired  to  secure  the  repayment  of  the  loans.  They  met  the 
conditions  of  their  impaired  credit  by  compliance  with  well-known 
rules  of  credit.  What  the  British  and  French  governments  did 
in  time  of  war  the  German  government  can  do  in  time  of  peace 
if  it  will  comply  with  the  same  rules  of  credit. 

These  illustrations  indicate  the  form  in  which  funds  can  be 
raised  by  the  German  government  upon  the  pledge  of  securities 
of  its  industries,  properties  and  public  utilities — if  it  wishes  to  do 
so.  The  securities  which  represent  these  industries,  properties 
and  public  utilities  are  the  most  easily  exportable  and  marketable 
commodity  in  the  world  if  they  are  properly  prepared  for  foreign 
markets.  The  principal  difficulty  is  that  the  performance  must 
start  with  a  compulsory  contribution  or  loan  of  capital  for  that 
purpose.  It  is  not  to  be  expected  that  this  contribution  or  loan 
of  capital  will  be  made  voluntarily  by  German  capitalists  but  it 
can  be  enforced  by  appropriate  forms  of  taxation. 

This  method  of  payment  of  reparations  for  damages  to  the 
Allies  by  the  exportation  of  German  capital  is  economically 
possible  and  practical  financially  and  no  revision  of  the  economic 
clauses  of  the  Treaty  of  Versailles  on  that  score  is  necessary. 
The  justice  of  a  capital  tax  on  German  industries,  properties 
and  public  utilities  in  order  to  procure  for  the  German  government 

19 


the  funds  with  which  to  pay  the  reparations  for  damages  to  the 
Allies  is  open  to  no  serious  discussion.  The  only  question  is 
whether  under  all  the  circumstances  of  the  international  situation 
it  will  be  enforced  on  Germany. 

Great  Britain,  the  United  States  and  Germany 

The  opinion  is  frequently  stated  and  widely  held  that  if  Ger- 
many had  known  that  England  would  enter  the  war  on  the  side 
of  Belgium  and  France  the  German  armies  would  not  have  crossed 
their  frontiers  in  1914.  The  opinion  is  frequently  stated  and 
widely  held  that  if  the  United  States  had  shown  at  an  earlier  date 
its  firm  intention  not  to  submit  to  German  outrages  the  war  would 
have  been  terminated  with  much  less  loss  of  life  and  destruction 
of  property.  These  opinions  have  their  exact  analogies  in  the* 
matter  of  the  payment  of  the  reparations  for  damages  to  the 
Allies. 

Germany  is  justified  in  the  belief  that  there  will  not  be  con- 
tinued unity  of  action  among  the  Allies  and  that  France  and  Bel- 
gium cannot  count  upon  the  continued  support  of  Great  Britain 
or  the  aid  of  the  United  States  in  the  enforcement  of  the  provi- 
sions of  the  Treaty  of  Versailles.  It  is  this  belief  which  leads  the 
German  government  to  pursue  a  course  designed  to  enable  her  to 
escape  from  payment  of  reparations  for  damages  rather  than  a 
course  which  would  result  in  their  payment. 

The  uncertainty  as  to  the  attitude  of  the  United  States  can  be 
explained  upon  political  grounds — the  unwillingness  of  the  United 
States  to  accept  the  political  provisions  of  the  Treaty  of  Versailles 
or  become  involved  in  any  manner  in  the  political  problems  and 
controversies  of  Europe.  The  uncertainty  as  to  the  permanent 
attitude  of  Great  Britain  is  due  to  entirely  different  causes. 

The  Position  of  Great  Britain 

On  the  eve  of  the  Economic  Conference  at  Genoa  Lloyd 
George  made  an  address  before  the  House  of  Commons  in  the 
course  of  which  he  made  this  memorable  statement : 

"The  trouble  in  Europe  has  been  attributed  largely  to  the 
reparations  exacted  by  the  treaties  of  1919.  Those  treaties  did 
not  create  the  reparations  trouble.  It  is  due  to  the  fact  not  that 
you  are  exacting  reparations,  but  that  there  is  something  to  repair. 

"If  you  alter  the  Treaty  of  Versailles  you  do  not  wipe  out 
reparations;  you  simply  transfer  the  burden  of  them  from  Ger- 

20 


many  to  France,  England  and  Belgium,  but  in  the  main  to  France. 
You  would  transfer  the  burden  from  the  sixty  millions  of  people 
who  were  responsible  for  the  devastation  to  the  forty  millions 
who  are  the  victims  of  the  devastation.  So  it  is  no  use  criticising 
the  reparations." 

If  the  permanent  policy  of  Great  Britain  on  this  subject  were 
to  be  controlled  by  these  sentiments  Germany  would  no  longer 
seek  means  to  evade  the  payment  of  her  just  debts  to  the  Allies 
for  reparations  of  damages.  But  Germany  knows  that  the  gov- 
ernmental policy  of  Great  Britain  on  the  subject  of  the  payment  of 
reparations  for  damages  by  Germany  will  be  influenced  and  per- 
haps controlled  by  economical  considerations — by  the  present  inter- 
ests or  what  appears  to  be  the  present  interests  of  English  industry 
and  commerce.  The  views  of  English  economists  in  reference  to 
the  adverse  effects  on  English  foreign  commerce  of  the  com- 
pulsory payment  of  reparations  for  damages  by  Germany  to  the 
Allies  have  been  widely  accepted  by  English  bankers,  manufac- 
turers and  laborers. 

England  has  no  devastated  areas — no  ruined  mines  and  farms 
and  cities  destroyed.  Aside  from  the  loss  of  men  her  sacrifices 
in  the  war  were  primarily  and  principally  financial  in  character. 
However  costly  the  war  may  have  been  Great  Britain  was  the 
greatest  gainer  from  the  international  point  of  view.  The  Ger- 
man navy  was  destroyed  and  the  German  fleet  no  longer  exists. 

But  since  the  close  of  the  war  English  industries  have  been 
hard  hit  by  the  collapse  of  international  commerce.  The  conse- 
quent losses  of  capital  have  been  followed  by  problems  of  un- 
employment. English  capitalists  and  laborers  are  in  favor  of  any 
measure  that  promises  the  restoration  of  foreign  trade.  It  is 
easy  for  them  to  accept  the  doctrine  that  their  present  difficulties 
are  entirely  due  to  the  economic  provisions  of  the  treaties  made 
at  Paris  and  that  all  their  problems  will  be  happily  solved  by  the 
release  of  Germany  from  the  payment  of  reparations  for  damages 
to  the  Allies. 

The  whole  theory  is  unsound.  If  there  had  been  no  provisions 
in  any  treaty  for  the  payment  of  reparations  for  damages  by  any- 
one to  anyone  the  world  would  not  have  escaped  from  the  violent 
economic  readjustment  consequent  upon  the  world  war.  Every 
other  general  war  of  long  duration  has  been  followed  by  a  long 
period  of  economic  disturbance.  But  scientific  and  historical 
demonstrations  of  the  inevitable  economic  consequences  of  war 
have  little  interest  for  men  at  present  out  of  employment  and  do 

21 


not  afford  much  consolation  to  capitalists  and  statesmen  who  are 
charged  with  the  duty  of  formulating  measures  which  will  restore 
them  to  employment.  That  is  the  present  "reparations  problem" 
in  England  and  it  will  necessarily  influence  the  attitude  of  England 
in  all  her  international  negotiations  on  the  subject. 

The  practical  question,  therefore,  so  far  as  Great  Britain  is 
concerned,  is  whether  the  temporary  financial  interests  of  English 
manufacturers,  merchants  and  laborers  in  the  restoration  of  their 
German  trade  shall  defeat  the  just  claims  of  Belgian,  French, 
Italian,  Serbian  and  Roumanian  peasants  for  payment  by  Ger- 
many of  reparations  for  damages  inflicted  upon  them  during  the 
war.  Right  results  seldom  follow  wrong  settlements  and  unless 
this  question  is  settled  in  a  manner  that  is  just,  no  permanent 
economic  peace  can  be  expected  in  Europe. 

The  Position  of  the  United  States 

The  criticism  has  been  made  that  the  United  States  did  not 
act  in  good  faith  with  the  Allies  when  the  Senate  refused  to 
ratify  the  Treaty  of  Versailles  which  had  been  negociated  and 
signed  by  the  President  and  other  duly  authorized  representatives 
of  the  United  States.  There  is  no  sound  foundation  for  this 
criticism.  The  common  people  of  Europe  may  not  be  sufficiently 
versed  in  the  political  history  of  the  United  States  to  know  that 
there  are  constitutional  limitations  upon  the  power  of  the  President 
to  make  a  treaty  which  will  bind  the  United  States  without  the 
advice  and  consent  of  the  Senate  but  it  cannot  be  claimed  that 
the  representatives  of  any  country  present  at  Paris  at  the  making 
of  the  Treaty  of  Versailles  lacked  definite  knowledge  of  these 
constitutional  limitations  upon  the  power  of  the  President. 
Probably  all  those  representatives  were  sufficiently  well  in- 
formed in  regard  to  the  political  system  of  the  United  States 
to  know  this,  fact  without  special  instruction  but  the  Re- 
publican leaders  of  the  Senate  left  no  room  for  doubt  upon 
this  point. 

The  Treaty  of  Versailles  was  not  signed  until  June  28,  1919. 
The  President  had  previously  submitted  a  copy  of  the  proposed 
treaty  to  the  members  of  the  Committee  on  Foreign  Relations 
of  the  Senate.  Under  date  of  March  4,  1919,  thirty  nine  members 
of  the  Senate  signed  a  declaration  that  in  the  performance  of  their 
constitutional  rights  and  duties  they  would  refuse  to  vote  for  the 
ratification  of  any  treaty  which  contained  the  objectional  pro- 
visions for  the  establishment  of  a  League  of  Nations.  This 

22 


declaration  was  widely  published  in  the  journals  of  the  United 
States  and  Europe. 

The  Treaty  of  Versailles  itself  provided  that  it  should  be 
ratified  and  that  when  ratified  by  Germany  on  the  one  hand  and 
by  three  of  the  Principal  Allied  and  Associated  Powers  on  the 
other  hand  it  would  come  into  force  between  the  governments 
which  had  so  ratified  it.  The  Principal  Allied  and  Associated 
Powers  were  Great  Britain,  France,  Italy,  Japan  and  the  United 
States.  The  makers  of  the  treaty  therefore  contemplated  the 
posibility  that  not  more  than  three  of  those  countries  would 
ratify  it. 

There  can  be  therefore  no  question  as  to  the  right  of  the 
United  States  to  refuse  to  ratify  the  treaty.  If  the  good  faith 
of  the  United  States  can  be  questioned  in  connection  with  the 
Treaty  of  Versailles  it  must  be  by  reason  of  the  subsequent  course 
of  the  United  States  in  respect  to  the  matters  covered  by  the 
treaty. 

Treaty  of  Versailles  and  Treaty  of  Berlin 

The  Treaty  of  Versailles  contained  elaborate  provisions 
(other  than  the  provisions  for  the  League  of  Nations)  for  the 
readjustment  of  territorial,  financial  and  commercial  affairs  in 
Europe  and  elsewhere  in  the  world.  On  July  2,  1921,  Congress 
passed  and  the  President  approved  a  Joint  Resolution  which  de- 
clared that  the  state  of  war  existing  between  Germany  and  the 
United  States  was  at  an  end.  The  Resolution  further  provided : 

"That  in  making  this  declaration,  and  as  a  part  of  it,  there 
are  expressly  reserved  to  the  United  States  of  America  and  its 
nationals  any  and  all  rights,  privileges,  indemnities,  reparations, 
or  advantages,  together  with  the  right  to  enforce  the  same,  to 
which  it  or  they  have  become  entitled  under  the  terms  of  the 
armistice  signed  November  u,  1918,  or  any  extensions  or  modi- 
fications thereof ;  or  which  were  acquired  by  or  are  in  possession 
of  the  United  States  of  America  by  reason  of  its  participation 
in  the  war  or  to  which  its  nationals  have  thereby  become  right- 
fully entitled ;  or  which,  under  the  Treaty  of  Versailles,  have  been 
stipulated  for  its  or  their  benefit ;  or  to  which  it  is  entitled  as  one 
of  the  principal  allied  and  associated  powers;  or  to  which  it  is 
entitled  by  virtue  of  any  Act  or  Acts  of  Congress ;  or  otherwise." 

On  August  25,  1921,  the  Department  of  State  in  conformity 
to  this  resolution  negociated  at  Berlin  a  formal  treaty  with  Ger- 
many which  provides : 

23 


"Germany  undertakes  to  accord  to  the  United  States,  and 
the  United  States  shall  have  and  enjoy,  all  the  rights,  privileges, 
indemnities,  reparations  or  advantages  specified  in  the  aforesaid 
Joint  Resolution  by  the  Congress  of  the  United  States  of  July  2, 
1921,  including  all  the  rights  and  advantages  stipulated  for  the 
benefit  of  the  United  States  in  the  Treaty  of  Versailles  which 
the  United  States  shall  fully  enjoy  notwithstanding  the  fact  that 
such  Treaty  has  not  been  ratified  by  the  United  States." 

The  parts  of  the  Treaty  of  Versailles  under  which  the  United 
States  has  reserved  and  claims  in  full  its  rights  and  privileges 
relate  to  such  subjects  as  the  following: 

German  Colonies;  Military,  Naval  and  Air  Clauses;  Inter- 
allied Commissions  of  Control ;  Prisoners  of  War  and  Graves ; 
Reparation;  Financial  Clauses;  Economic  Clauses;  Commercial 
Relations;  Debts;  Property  Rights  and  Interests;  Contracts, 
Prescriptions,  Judgments;  Aerial  Navigation;  Ports,  Water- 
ways and  Railways;  and  Guarantees. 

The  German  government  now  seeks  to  escape  from  its  obliga- 
tions to  the  Allies  under  these  provisions  of  the  Treaty  of  Ver- 
sailles. The  relation  of  partners  in  a  joint  enterprise  imposes 
upon  all  the  associates  the  obligation  of  acting  with  the  utmost 
good  faith  towards  each  other.  This  obligation  rests  upon  them 
iiot  only  during  the  period  of  the  prosecution  of  the  joint  venture 
but  extends  to  all  subsequent  dealings  with  the  subject  matter  of 
the  enterprise  which  is  held  to  be  common  property  in  which  they 
are  all  interested.  No  one  of  them  may  by  separate  agreement 
obtain  for  himself  special  advantages  in  regard  to  it.  These 
simple  and  fundamental  principles  are  universally  recognized  in 
the  common  law  of  Great  Britain  and  the  United  States  and  the 
civil  law  of  Europe.  Similar  standards  of  conduct  ought  to  pre- 
vail in  international  politics. 

The  United  States  may  properly  take  full  advantage  of  its 
liberty  of  action  to  safeguard  its  political  interests  but  when  a 
financial  or  economical  question  under  the  Treaty  of  Versailles 
arises  between  the  Allies  and  the  Central  Powers  against  whom 
the  war  was  waged  as  a  joint  venture  the  simplest  principles  of 
international  honor  and  integrity  impose  upon  the  United  States 
the  obligation  of  supporting  and  assisting  the  Allies  or  any  one 
of  them  in  the  enforcement  of  all  those  clauses  and  provisions  of 
the  Treaty  of  Versailles  under  which  the  United  States  has  re- 
served its  full  rights  and  benefits. 

24 


The  course  of  events  has  put  the  United  States  in  a  position 
where  as  a  matter  of  international  duty  and  good  faith  it  must 
take  part  in  the  economic  affairs  of  Europe  or  renounce  benefits 
and  advantages  to  which  it  is  entitled  by  reason  of  its  participa- 
tion in  the  war  and  the  subsequent  events  by  which  peace  has  been 
established  between  the  United  States  and  Germany. 

Cancellation  of  Allied  Debts  to  the  United  States 

The  project  most  commonly  proposed  for  financial  aid  to 
Europe  by  the  United  States  is  the  cancellation  of  the  loans  made 
by  the  United  States  to  the  Allies  in  connection  with  the  World 
War.  An  argument  in  favor  of  the  cancellation  of  the  loan  to 
France  is  based  upon  the  ground  that  the  loans  and  financial  assis- 
tance given  by  France  to  the  American  Colonies  in  aid  of  the 
war  of  independence  were  never  repaid.  In  the  case  of  the 
other  European  governments  to  which  the  United  States  made 
loans  there  are  no  sentimental  considerations  aside  from  the  cir- 
cumstances of  the  World  War.  In  reference  to  all  the  loans  the 
argument  is  advanced  that  the  loans  were  made  to  enable  the 
Allies  to  continue  a  war  to  which  the  United  States  had  become 
a  party  and  in  which  it  was  not  yet  prepared  to  bear  its  fair 
share  of  the  war  work  and  that  these  loans  were  in  the  nature  of 
compensation  to  the  Allies  for  their  conduct  of  the  business  of 
the  joint  venture  until  the  United  States  should  be  in  a  position 
to  do  its  full  part. 

The  answer  to  all  of  these  arguments  is  that  at  the  time  the 
advances  were  made  they  were  made  as  loans  with  the  intention 
that  they  should  be  repaid.  The  Government  of  the  United  States 
has  always  treated  them  and  still  treats  them  as  debts  that  should 
be  paid.  The  proposition  for  their  cancellation  has  never  met  with 
any  general  sympathetic  response  either  in  American  official  circles 
or  American  public  sentiment.  It  is  no  longer  seriously  discussed 
except  as  a  smoke  screen  for  the  release  of  Germany  from  pay- 
ment of  reparations  for  damages  to  the  Allies. 

The  proposition  for  the  reduction  of  the  amount  of  reparations 
for  damages  to  be  paid  by  Germany  to  the  Allies  in  conjuction 
with  a  proposition  for  the  cancellation  of  the  Allied  debts  to  the 
United  States  was  originally  made  by  Mr.  Lloyd  George  to  Presi- 
dent Wilson  and  was  promptly  and  emphatically  rejected  by  him. 
The  same  proposition  was  more  recently  published  by  Sir  Robert 
Home,  Chancellor  of  the  British  Exchequer  at  the  Conference 

25 


of  Allied  Finance  Ministers  for  transmission  to  their  governments 
and  to  the  Reparations  Commission. 

The  combination  of  the  two  transactions  would  have  two 
distinct  advantages  for  England.  There  is  little  prospect  of  the 
repayment  to  England  of  the  loans  made  by  England  to  the 
weaker  allied  states  in  Europe.  In  consideration  of  the  release 
of  these  claims  which  may  never  be  paid,  England  would  secure 
her  own  release  from  her  debt  to  the  United  States.  At  the 
same  time  the  corresponding  reduction  of  the  amount  of  German 
reparations  would  (according  to  present  English  opinion)  tend  to 
restore  English  trade  and  commerce  in  Germany  to  its  pre-war 
basis. 

The  proposal  for  the  cancellation  of  the  Allied  debts  to  the 
United  States  with  a  corresponding  reduction  of  Germany's  debt 
for  reparations  to  the  Allies  in  effect  means  that  the  United  States 
is  asked  to  assist  Germany  in  the  payment  of  reparations  for  dam- 
ages to  the  Allies.  So  far  as  there  is  any  inter-dependence  be- 
tween the  two  transactions  it  leads  to  an  opposite  conclusion.  The 
people  of  the  United  States  subscribed  for  Liberty  bonds  and 
loaned  the  proceeds  of  the  subscriptions  to  the  Allies.  They  are 
saddled  with  a  heavy  burden  of  taxation  to  pay  the  principal  and 
interest  of  these  bonds.  As  a  matter  of  right  and  justice  all  the  ex- 
penses incurred  by  the  United  States  in  the  prosecution  of  the  war 
ought  to  have  been  paid  by  Germany.  As  between  Germany  and 
the  United  States  there  was  no  good  reason  for  the  omission  of  the 
United  States  to  exact  payment  of  its  war  expenses  from  Ger- 
many. The  only  just  ground  for  such  an  omission  was  that  the 
Allies  needed  the  payment  of  reparations  more  than  the  United 
States  needed  payment  of  the  costs  of  the  war  because  they  had 
suffered  more  from  the  ravages  of  an  unjust  and  unlawful  war. 

Now  the  United  States  is  asked  to  aid  Germany  in  the  pay- 
ment  of  reparations  for  damages  to  the  Allies.  Germany  caused 
the  damages  to  the  Allies  and  Germany  ought  to  pay  the  repara- 
tions to  the  Allies.  Germany  by  her  unlawful  aggressions  im- 
posed upon  the  United  States  the  necessity  of  going  to  the  aid  of 
the  Allies  and  Germany  ought  to  pay  the  debts  incurred  by  the 
Allies  to  the  United  States  for  that  aid. 

The  government  of  Germany  has  recognized  the  justice  of 
that  disposition  of  the  matter  in  its  proposal  to  President  Harding 
in  April,  1921,  to  pay  the  debts  of  the  Allies  to  the  United  States 
in  addition  to  the  amount  of  direct  reparations  to  the  Allies  which 

26 


it  represented  that  Germany  was  able  to  pay.  Let  the  United  States 
adopt  this  proposal  and  recommend  its  acceptance  as  the  basis 
for  the  settlement  of  both  these  questions. 

The  Position  of  Germany 

The  Germans  must  have  a  profound  contempt  for  the  Allied 
and  Associated  nations  which  had  the  courage  and  physical  re- 
sources to  carry  the  war  to  the  verge  of  victory  and  did  not  carry 
it  to  a  complete  and  conclusive  victory.  The  conduct  of  the  Ger- 
man government  subsequent  to  the  ratification  of  the  Treaty  of 
Versailles  and  its  present  attitude  are  merely  manifestations  of 
this  German  contempt  of  Allied  weakness.  It  counts  upon  the 
lack  of  identical  interest  and  absolute  unity  among  the  Allies  to 
escape  from  its  obligations  under  the  Treaty  of  Versailles. 

The  French  army  is  the  only  military  force  In  Europe  capable 
of  enforcing  on  Germany  any  compliance  with  her  international 
obligations.  This  accounts  for  the  great  prominence  given  in  all 
discussions  in  favor  of  the  release  of  Germany  from  the  payment 
of  reparations  for  damages  to  the  Allies  to  the  necessity  for  the 
reduction  of  the  French  army. 

Four  years  ago  we  honored  the  French  army  with  the  proud 
title  of  the  advance  guard  of  European  civilization  and  liberty. 
It  is  still  the  advance  guard  of  European  security.  Until  all 
questions  in  regard  to  the  fulfillment  by  Germany  of  her  obliga- 
tions under  the  Treaty  of  Versailles  have  been  settled  in  principle 
and  put  in  the  path  of  administrative  execution,  Great  Britain 
and  the  United  States  could  commit  no  greater  folly  than  to  en- 
courage the  disarmament  of  France. 

The  aristocratic  and  military  government  of  Germany  had  the 
capacity  and  courage  to  mobilize  all  classes  of  German  laborers  as 
soldiers  and  munitions  workers  to  carry  on  the  war.  The  capital- 
istic government  of  Germany  has  had  the  capacity  and  courage 
to  further  impose  the  burdens  of  the  war  on  the  German  laborers 
by  the  unlimited  issue  of  paper  marks  in  which  their  wages  have 
been  paid.  It  has  the  capacity  and  must  be  made  to  find  the  courage 
to  mobilize  the  capital  of  the  country  for  the  payment  of  repara- 
tions for  damages  to  the  Allies  by  the  exportation  of  capital  either 
by  the  direct  sale  of  securities  in  German  industries,  properties 
and  public  utilities  in  foreign  markets,  or  by  the  negotiation  of 
foreign  loans  secured  by  the  pledge  of  the  stock  and  bonds  of 
German  properties,  industries  and  public  utilities.  If  the  present 
government  of  Germany  has  not  the  force  and  courage  to  confront 

27 


the  aristocratic  landholders  and  lords  of  German  industry  with 
this  program  it  ought  to  be  overthrown  and  a  better  government 
established  in  its  place. 

The  question  rests  with  England,  France  and  the  United  States. 
If  in  unison  they  decide  that  payment  of  reparations  for  damages 
by  Germany  will  be  enforced  by  the  American,  British  and  French 
armies  of  occupation  on  the  Rhine,  the  German  government  will 
find  the  capital  with  which  to  make  the  payments  without  any 
violent  disturbance  of  international  trade  and  commerce. 

The  financial  pathway  will  not  be  smooth  and  the  financial 
terms  will  not  be  easy.  Germany  will  have  to  pay  the  price  of 
the  reckless  and  dishonest  management  of  her  financial  affairs 
and  her  well  earned  reputation  for  bad  faith  in  international  af- 
fairs. But  if  Germany  will  take  the  necessary  steps  to  acquire 
the  proper  capital  securities  and  then  comply  with  fundamental 
rules  of  credit  in  the  issue  of  her  bonds  it  is  reasonable  to  believe 
that  she  can  secure  in  the  financial  markets  of  the  world  the 
necessary  funds  to  pay  her  bill  for  reparations  for  damages  to  the 
Allies.  France  and  the  British  Empire  would  take  part  of  the 
bonds  and  in  view  of  the  vast  development  of  the  capacity  of  the 
market  of  the  United  States  to  absorb  foreign  as  well  as  domestic 
securities  since  1915,  no  proposition  of  this  character  need  be 
deemed  impossible. 

Projects  for  an  International  Gold  Currency 

But  the  sale  of  German  bonds  to  investors  is  the  final  act  in  the 
performance.  The  first  step  is  to  provide  Germany  and  other 
parts  of  Europe  with  a  gold  secured  currency.  This  cannot  be 
done  without  the  co-operation  of  the  United  States.  Various 
projects  for  international  credits  or  banks  have  been  proposed 
for  the  economic  restoration  of  the  European  countries  which 
have  either  lost  all  their  gold  or  have  issued  so  much  paper 
currency  that  there  is  no  hope  for  its  redemption  in  gold. 

Plans  formulated  by  three  Americans  for  that  purpose 
have  received  European  as  well  as  American  recognition. 

(a)  The  plan  proposed  by  Mr.  Frank  A.  Vanderlip,  recently 
president  of  the  National  City  Bank. 

(b)  The  plan  proposed  by  Senator  Gilbert  M.  Hitchcock  of 
Nebraska. 

(c)  The  plan  proposed  by  Senator  Robert  L.  Owen  of  Okla- 
homa. 

The  ultimate  objects  of  the  three  plans  are  similar  but  the 
bases  of  organization  are  very  different. 

28 


The  Vanderlip  Project 

Mr.  Frank  A.  Vanderlip  submitted  to  the  Porta  Rosa  Con- 
ference (a  conference  of  the  so-called  succession  states  of  the 
old  Hapsburg  Empire  which  met  at  Porta  Rosa,  Italy)  a  plan  for 
the  organization  of  a  banking  corporation  with  a  capital  of 
$1,000,000,000  in  gold  to  be  known  as  the  "Gold  Reserve  Bank 
of  the  United  States  of  Europe."  This  bank  was  to  be  created  as 
a  "super-corporation"  through  the  League  of  Nations  or  some 
other  international  organization  on  the  theory  that  it  would  be 
better  if  it  were  not  organized  under  the  laws  of  any  particular 
country.  For  convenience  this  bank  will  be  designated  as  the 
Central  Bank. 

Subscriptions  to  the  shares  of  stock  of  this  international  bank 
were  to  be  open  to  anyone  able  to  subscribe  and  pay  in  gold.  As 
America  at  the  present  time  holds  the  predominating  stock  of 
free  gold,  it  was  assumed  that  the  bulk  of  the  initial  subscrip- 
tions would  come  from  the  United  States.  It  was  not  contem- 
plated, however,  that  the  stock  should  be  permanently  lodged  in 
the  United  States  and  provisions  were  made  under  the  plan  by 
which  all  of  the  stock  might  in  future  be  purchased  by  Euro- 
peans. With  that  in  view  the  stock  was  to  be  issued  in  two 
classes.  The  stock  taken  by  Americans  would  be  designated  as 
stock  "A"  and  that  taken  by  Europeans  would  be  designated  as 
stock  "B."  The  two  classes  of  stock  would  be  identical  in  all 
respects  except  that  class  "A"  stock  would  be  subject  to  retire- 
ment by  call  or  acquisition  by  European  governments. 

The  affairs  of  the  corporation  were  to  be  controlled  by  nine 
trustees  of  whom  five  would  be  Americans  in  the  first  instance 
and  four  would  be  Europeans.  The  trustees  would  hold  their 
positions  for  life  or  until  reaching  an  age  limit  and  would  have 
to  free  themselves  from  other  financial  connections.  Vacancies 
in  the  Board  of  Trustees  would  be  filled  by  the  remaining  trustees 
but  no  new  trustee  would  be  elected  who  was  not  approved  by  a 
majority  of  the  individual  members  of  the  Federal  Reserve  Board 
at  Washington.  Whenever  75%  of  class  "A"  stock  had  been  ac- 
quired by  European  governments  these  provisions  in  regard  to 
American  control  would  lapse. 

In  each  of  the  European  nations  which  might  invite  the  estab- 
lishment of  a  branch  of  the  Central  Bank,  a  local  banking  cor- 
poration would  be  organized  under  a  special  legislative  act.  These 
local  banks  would  be  designated  as  Gold  Reserve  National  Banks 
and  their  capital  would  be  fixed  by  the  trustees  of  the  Central 

29 


Bank  and  paid  out  of  the  funds  of  the  Central  Bank.  Each  Gold 
Reserve  National  Bank  would  be  managed  by  nine  governors  who 
would  be  appointed  and  hold  office  at  the  pleasure  of  the  trustees 
of  the  Central  Bank. 

The  prerequisites  to  the  establishment  in  any  country  of  a 
Gold  Reserve  National  Bank  would  be: 

1.  An  official  invitation  by  the  government  of  the  country  in 
question  to  establish  such  a  bank. 

2.  The  furnishing  by  the  government,  free  of  all  expenses,  of 
an  adequate  building  equipped  for  the  purposes  of  the  business. 
This  building  and  the  ground  upon   which  it  stands  would  be 
given  the  same  extra  territorial  rights  as  those  enjoyed  by  a  for- 
eign embassy. 

3.  An  assurance  that  there  would  be  no  legislation  enacted  to 
hamper  the  free  circulation  of  the  notes  of  the  Central  Bank  and 
the  free  exportation  and  importation  of  these  notes  or  against  the 
making  of  contracts  payable  in  these  notes  or  the  opening  oi 
deposit  accounts  in  these  notes  in  existing  banks. 

The  Gold  Reserve  National  Banks  would  deal  solely  with  in- 
corporated commercial  banks  and  not  with  individuals  and  would 
make  loans  only  against  the  pledge  of  short  term  commercial 
paper  arising  out  of  legitimate  commercial  transactions  and  not 
stocks,  bonds  or  mortgages  or  real  estate  or  governmental  obliga- 
tions. 

The  Central  Bank  would  have  power  to  issue  circulating  dollar 
notes  in  such  form  and  denominations  as  the  trustees  should  desig- 
nate and  these  notes  would  be  advanced  to  the  various  national 
banks  against  deposits  of  gold  or  of  gold  and  commercial  paper. 
The  Central  Bank  would  always  require  a  deposit  of  not  less  than 
20%  of  gold  against  advances  of  circulating  notes  and  would  keep 
a  reserve  of  at  least  20%  in  gold  back  of  all  outstanding  notes. 

The  circulating  notes  of  the  Central  Bank  would  under  normal 
conditions  be  redeemable  on  demand  in  gold  but  in  the  event  of 
the  withdrawal  of  gold  to  the  point  where  it  impaired  the  useful- 
ness of  the  bank  the  trustees  would  have  power  to  suspend  the 
redemption  of  the  notes  in  gold.  They  would  have  the  same 
power  of  suspension  of  payments  in  gold  in  the  event  of  war  or 
other  great  crisis. 

In  the  presentation  of  his  plan,  Mr.  Vanderlip  made  the  fol- 
lowing further  explanation: 

"It  is  the  aim  of  this  plan  to  create  an  organization  which 
could  not  be  controlled  by  the  financial  interests  owning  the  stock 

30 


and  so  insure  that  there  would  be  no  contest  between  different 
governments  or  nationals  to  acquire  stock  for  the  purpose  of  in- 
fluencing the  management  of  the  Gold  Reserve  Bank  of  the  United 
States  of  Europe." 

Whatever  merits  the  plan  may  in  theory  possess,  its  practical 
value  is  very  slight.  Any  American  participation  in  the  capital 
would  have  to  come  from  private  sources  because  the  provisions 
in  regard  to  the  creation  of  the  Central  Bank  as  a  "super-cor- 
poration" through  the  League  of  Nations  or  through  some  other 
international  organization  would  preclude  all  possibility  of 
any  participation  or  co-operation  on  the  part  of  the  Gov- 
ernment of  the  United  States.  It  is  not  reasonable  to  expect  that 
American  capital  from  private  sources  in  any  substantial  amount 
would  be  drawn  into  an  organization  under  a  plan  by  which  the 
organization  could  not  be  controlled  by  the  financial  interests  own- 
ing the  stock.  It  does  not  appear  probable  that  the  adoption  of 
the  Vanderlip  project,  however  meritorious  it  may  be  in  principle, 
will  be  accomplished  within  a  period  of  time  sufficient  to  render 
it  of  any  practical  value  in  the  solution  of  the  currency  problems 
of  Central  Europe. 

The  Hitchcock  Project 

On  December  12,  1921,  Senator  Gilbert  M.  Hitchcock  of 
Nebraska  proposed  in  the  Senate  of  the  United  States  the  enact- 
ment of  a  law  "To  establish  a  Bank  of  Nations  to  promote  and 
regulate  commerce  with  foreign  nations  and  to  act  as  the  fiscal 
agent  of  the  United  States."  The  proposed  law  provided  for  the 
establishment  of  an  international  banking  institution  to  be  known 
and  designated  as  the  Bank  of  Nations  with  headquarters  in  the 
City  of  New  York  and  such  branch  offices  in  the  United  States 
and  other  countries  as  the  directors  might  from  time  to  time  deter- 
mine. The  capital  stock  of  $2,400,000,000  would  be  divided  into 
shares  of  $10,000  each  of  which  at  least  one-third  would  be  paid 
in  gold  and  not  to  exceed  two-thirds  could  be  paid  at  the  option 
of  the  subscriber  in  the  interest  bearing  bonds  of  solvent  govern- 
ments at  the  current  market  price.  The  Secretary  of  the  Treasury 
would  be  authorized  to  subscribe  on  behalf  of  the  Government  of 
the  United  States  for  $1,300,000,000  of  the  capital  stock.  $200,- 
000,000  would  be  offered  for  subscription  at  par  to  banks,  bankers, 
importers  and  exporters  of  the  United  States  and  the  remaining 
$900,000,000  would  be  sold  to  such  solvent  governments  as  might 
be  admitted  as  stockholders  by  treaty  or  trade  agreements  nego- 

31 


tiated  by  the  President  of  the  United  States.  The  Bank  of  Na- 
tions would  be  the  fiscal  agent  of  the  Government  of  the  United 
States  and  of  such  other  governments  of  the  world  as  might  be 
admitted  as  stockholders.  The  control  would  be  in  the  hands  of 
twenty- four  directors  of  whom  thirteen  would  be  chosen  by  the 
Secretary  of  the  Treasury  with  the  approval  of  the  President; 
two  by  the  private  stockholders  in  the  United  States  other  than 
the  Government  of  the  United  States ;  and  nine  by  the  stockhold- 
ing governments  other  than  that  of  the  United  States. 

The  resources  and  facilities  of  the  Bank  of  Nations  would  be 
used  to  promote  international  commerce;  establish  international 
credit  and  to  stabilize  international  exchange.  It  would  have 
authority  to  issue  its  notes  or  bank  currency  payable  on  demand  in 
gold  dollars  or  their  equivalent  in  lawful  money  at  the  bank  or 
any  of  its  branches  in  other  countries,  but  such  notes  or  bank  cur- 
rency could  be  issued  only  as  a  result  of  loans  to  its  depositors  or 
by  purchase  of  international  bills  of  exchange  or  mercantile  paper 
growing  out  of  imports  or  exports. 

The  amount  of  currency  outstanding  at  any  time  would  be 
limited  by  the  requirement  that  the  Bank  of  Nations  should  keep 
on  hand  a  reserve  against  its  notes  of  33%  in  gold.  The  Bank 
would  also  be  required  to  keep  on  hand  a  reserve  as  against  depo- 
sits of  not  less  than  25%,  of  which  not  less  than  four-fifths  should 
be  in  gold  and  one-fifth  in  bonds  or  treasury  certificates  of  the 
United  States. 

Senator  Hitchcock  in  an  address  at  Philadelphia  marshaled  the 
arguments  in  favor  of  the  adoption  of  his  project  for  a  Bank  of 
Nations.  He  traced  the  economic  development  of  the  business  of 
the  world  through  the  three  stages  of  barter;  sales  by  medium 
of  money;  and  sales  effected  by  credit  transfer  in  one  form  or 
another.  He  then  reviewed  briefly  the  development  of  banking 
and  currency  in  the  United  States  through  the  system  of  State 
banks  which  issued  independent  currency  until  the  National  Bank 
system  was  established  during  the  Civil  War.  This  system  led  to 
a  tremendous  expansion  of  credit  and  development  of  business  but 
issue  of  currency  was  slow  and  inelastic.  These  defects  of  the 
National  Bank  system  led  to  the  establishment  of  the  present 
Federal  Reserve  Banking  System  which  has  resulted  in  another 
enormous  expansion  of  the  banking  power  and  commercial  credit 
in  the  United  States.  He  described  the  similar  development  of 
banking  power  and  commercial  credit  in  other  countries  and  then 
summarized  his  conclusions  in  these  sentences : 

32 


"But  while  every  nation  has  provided  by  law  for  a  system  of 
banking  and  currency  which  gives  to  domestic  business  the  credit 
that  is  needed,  all  of  these  systems  stop  at  the  boundary  line  of 
the  country.  No  system  has  ever  been  established  by  authority  of 
law  for  international  commerce,  vast  and  important  as  it  is.  Be- 
fore the  war,  when  currency  values  in  all  countries  were  reason- 
ably stable,  there  was  a  make-shift  system  of  credit  maintained 
largely  by  private  international  bankers  and  merchants  but  that 
has  been  utterly  broken  down  and  destroyed  by  the  war. 
****** 

"And  so  I  have  proposed  in  Congress  the  establishment  of  a 
Bank  of  Nations  so  that  we  may  have  a  system  of  banking  and 
currency  that  will  operate  in  the  international  field  just  as  banking 
and  currency  systems  operate  in  the  domestic  field  in  each 
country." 

From  the  financial  and  economic  point  of  view  the  project  is 
meritorious  in  principle  but  in  view  of  the  present  international 
situation  and  the  position  of  the  United  States  in  international 
affairs  it  is  open  to  one  serious  criticism  from  the  practical  point 
of  view.  It  contemplates  the  establishment  of  joint  ownership  of 
the  Bank  of  Nations  by  the  government  of  the  United  States  and 
by  such  solvent  governments  as  may  be  admitted  as  stockholders 
by  treaty  or  trade  agreements  negotiated  by  the  President  of  the 
United  States.  Any  treaty  or  trade  agreement  negotiated  by  the 
President  of  the  United  States  will  require  the  advice  and  consent 
of  the  Senate  to  its  ratification.  Recent  experience  has  shown  the 
difficulties  and  uncertainties  of  the  accomplishment  of  any  prac- 
tical results  within  a  short  period  of  time  by  this  method.  The 
possibility  of  the  Government  of  the  United  States  entering  into 
partnership  with  other  governments  in  the  organization  and  admi- 
nistration of  a  Bank  of  Nations  by  means  of  treaties  or  trade 
agreements  is  so  remote  that  projects  for  the  economic  rehabili- 
tation of  Europe  based  on  that  possibility  are  scarcely  worthy  of 
the  consideration  to  which  their  intrinsic  merits  might  otherwise 
entitle  them. 

Any  plan  for  American  participation  in  an  international  bank 
must  either  depend  exclusively  and  entirely  upon  the  support  of 
private  interests  or  provide  for  an  unquestioned  and  exclusive 
ownership  and  control  by  the  Government  of  the  United  States 
of  the  proposed  bank  whose  primary  purpose  must  be  the  pro- 
motion of  American  international  interests  with  such  incidental 
benefits  to  other  peoples  and  other  governments  as  may  flow 
from  the  situation.  Such  a  plan  has  been  proposed  by  Senator 
Robert  L.  Owen  of  Oklahoma. 

33 


The  Owen  Project 

On  January  4,  1922,  Senator  Robert  L.  Owen  introduced  a  bill 
in  the  Senate  to  amend  the  Federal  Reserve  Act  so  as  to  provide 
for  the  creation  of  a  Federal  Reserve  Foreign  Bank  of  the  United 
States  to  be  under  the  supervision  of  the  Federal  Reserve  Board 
and  to  be  located  in  the  City  of  New  York.  The  Federal  Reserve 
Foreign  Bank  would  have  an  authorized  capital  of  $1,000,000,000 
and  would  begin  business  with  a  paid  up  capital  of  $500,000,000  in 
gold.  All  the  stock  of  the  bank  would  be  taken  at  par  by  the 
Federal  Reserve  Banks  of  the  United  States  in  proportion  to  their 
capital  and  surplus  and  paid  for  in  gold.  The  Federal  Reserve 
Foreign  Bank  would  be  conducted  under  the  supervision  and  con- 
trol of  a  board  of  directors  consisting  of  nine  members  appointed 
by  the  President  upon  the  advice  and  consent  of  the  Senate.  All  the 
members  of  the  board  of  directors  would  be  citizens  of  the  United 
States.  The  Federal  Reserve  Foreign  Bank  would  have  the  power 
to  conduct  a  general  international  banking  business  of  a  commer- 
cial character  and  to  issue  its  bank  notes  with  a  reserve  against 
its  notes  of  a  minimum  of  20%  in  gold  and  100%  in  short-term 
bills  endorsed  by  member  banks  in  good  standing  and  secured  by 
staple  merchantable  imperishable  commodities  properly  insured 
and  protected  by  documents  of  title ;  to  open  dollar  credits  at  home 
and  abroad  for  the  account  of  domestic  or  foreign  banks  or  bank- 
ers; to  facilitate  exports  and  imports  to  and  from  the  United 
States  and  exports  and  imports  to  and  from  one  foreign  country 
to  another  foreign  country ;  to  establish  branches  and  agencies  in 
foreign  countries  for  the  purpose  of  facilitating  commerce  with 
the  United  States  and  furnishing  a  currency  based  on  gold  and 
commodities  as  a  medium  of  exchange  and  as  an  aid  in  making 
industrial  and  commercial  contracts. 

This  plan  has  several  very  great  merits.  The  proposed  bank 
is  exclusively  and  distinctively  American  in  character  and  is  to 
be  organized  primarily  and  principally  for  the  purpose  of  pro- 
moting American  interests  in  foreign  commerce  and  incidentally 
in  providing  a  safe  and  sane  currency  for  the  transaction  of  indus- 
trial and  commercial  business  in  those  countries  which  have  issued 
so  large  an  amount  of  paper  currency  that  it  is  practically  irre- 
deemable and  which  in  other  respects  offer  an  advantageous  field 
for  the  transaction  of  the  business  of  an  international  commercial 
bank.  The  capital  is  immediately  available  by  reason  of  the  fact 
that  the  Federal  Reserve  Banks  throughout  the  country  will  take 
their  stock  and  pay  their  subscriptions  in  gold  without  delay. 

34 


This  project  deserves  the  serious  consideration  and  cor- 
dial support  of  the  people  of  the  United  States.  It  is  not 
an  after  thought  of  the  war  nor  the  suggestion  of  a  temporary 
means  to  remedy  the  collapse  of  international  commerce  and 
foreign  exchange  since  the  close  of  the  war.  On  February 
20,  1918,  while  the  war  was  in  full  progress  and  on  the  eve 
of  an  immense  offensive  movement  by  the  Central  Powers 
the  same  general  project  was  proposed  in  the  Senate  of  the 
United  States  by  the  same  distinguished  advocate  of  the 
original  establishment  of  the  Federal  Reserve  System  in  the 
United  States.  The  project  then  was  and  now  is  advocated 
and  defended  from  the  American  point  of  view  as  a  project 
"to  establish  the  Federal  Reserve  Foreign  Bank  and  thereby 
maintain  the  American  dollar  at  par  throughout  the  world, 
furnish  American  commerce  with  stable  exchange  and  credit 
facilities  in  foreign  countries,  and  promote  the  foreign  com- 
merce of  the  United  States." 

Senator  Owen  has  generously  disclaimed  any  desire  to 
monopolize  the  credit  for  this  project  and  has  expressed  his 
wish  to  have  it  adopted  by  the  present  national  administra- 
tion as  part  of  its  constructive  financial  program.  Doubtless 
Senator  Hitchcock  would  entertain  the  same  generous 
sentiments  in  regard  to  his  project.  If  without  partisan  bias 
the  President  and  Congress  of  the  United  States  can  unite 
in  the  adoption  of  this  project  for  a  Federal  Reserve  Foreign 
Bank  of  the  United  States  there  can  be  no  doubt  that  the 
establishment  of  such  an  international  financial  institution 
under  the  control  and  supervision  of  the  United  States  will 
result  in  an  enormous  expansion  of  the  international  trade 
and  commerce  and  the  financial  influence  of  the  United  States. 
The  first  duty  of  the  United  States  to  Europe  (if  it  has  any 
duty  in  the  situation)  is  to  make  use  of  its  enormous  accumula- 
tion of  gold  to  restore  to  a  sane  and  solvent  basis  the  conduct 
of  both  the  domestic  and  the  foreign  business  of  the  countries 
which  have  been  so  recently  at  war.  The  Owen  project  for  the 
establishment  of  a  Federal  Reserve  Foreign  Bank  of  the  United 
States  with  branches  in  Europe  does  not  involve  any  inter- 
national complications  or  "entangling  foreign  alliances."  Legal 
and  official  permission  for  a  foreign  financial  corporation  to 
transact  business  of  that  character  in  any  country  of  Europe 
is  all  that  will  be  needed.  Self  interest  and  the  necessities  of 
their  present  situation  will  secure  from  European  govern- 
ments all  the  necessary  privileges  in  this  respect. 

35 


In  its  immediate  effects  the  establishment  of  a  gold  secured 
dollar  currency  in  Germany  and  other  countries  of  Central  Europe 
will  promote  the  restoration  of  their  industry  and  commerce  to  a 
sound  basis  of  international  exchange.  In  its  ultimate  effects  that 
step  will  bring  even  greater  benefits  both  to  those  countries  and 
to  the  United  States. 

For  many  years  the  economic  condition  of  the  United  States 
has  been  menaced  by  the  danger  of  the  immigration  of  cheap 
European  labor  and  the  importation  of  the  products  of  cheap 
European  labor.  If  a  gold  secured  dollar  currency  is  established 
in  Europe  as  a  common  medium  of  exchange  it  will  in  time  cause 
the  wages  of  labor  and  the  prices  of  products  of  labor  in  Europe 
to  be  measured  in  terms  of  the  American  dollar.  This  will  nec- 
essarily lead  to  a  gradual  increase  in  the  wages  of  European 
labor  and  a  decrease  of  the  difference  between  those  wages  and 
the  wages  paid  to  American  labor  for  similar  work  in  the  United 
States.  That  result  will  not  only  be  beneficial  from  the  humani- 
tarian point  of  view  but  it  will  also  simplify  the  problems  of  the 
immigration  of  labor  and  the  importation  of  European  merchan- 
dise into  the  United  States. 

There  can  be  no  more  appropriate  termination  of  this 
article  than  to  quote  the  following  passages  from  an  address 
delivered  by  Mr.  Owen  in  the  Senate  of  the  United  States 
on  January  4,  1922,  in  explanation  and  justification  of  his 
project  for  a  Federal  Reserve  Foreign  Bank  of  the  United 
States  as  a  means  for  the  rehabilitation  of  international  com- 
merce and  the  re-establishment  of  the  foreign  trade  of  the 
United  States. 

"The  one  gigantic  outstanding  fact  which  retards  rapid 
restoration  of  European  industry  and  commerce  is  the  lack 
of  a  stable  gold-secured  currency  measurable  in  terms  of 
gold.  Even  gold  fluctuates  in  value,  but  at  last  it  has  been 
found  by  the  nations  of  the  world  to  be  the  most  stable  and 
acceptable  measure  of  value  ever  established  for  monetary 
purposes. 

"The  United  States  is  able  to  provide  a  means  for  furnish- 
ing currency  secured  by  gold  and  redeemable  in  gold  and 
secured  at  the  same  time  by  staple  merchantable  commodities 
and  underwritten  by  sound  bankers'  credits.  I  have  submitted 
this  bill  which  contains  these  fundamental  principles,  and 
which,  if  adopted  would  establish  a  Federal  Reserve  Foreign 
Bank  owned  by  the  Federal  Reserve  Banks  of  America,  to 

36 


function  as  their  servant.  Such  a  bank,  with  a  primary 
capital  of  five  hundred  millions  of  gold  taken  from  the 
Federal  reserve  banks,  would  not  weaken  the  banking  system 
of  the  United  States  for  the  reason  that  we  have  far  in  ex- 
cess of  the  amount  of  gold  required  to  keep  our  Federal 
reserve  notes  at  par". 


"Senators,  you  have  it  in  your  power  to  adopt  a  plan  that 
will  restore  the  industrial  life  of  the  world,  and  I  am  present- 
ing it,  with  such  earnestness  as  I  may,  in  the  hope  that 
patriotism  and  public  spirit  will  induce  Senators  to  study 
this  proposal  I  have  made,  and  I  trust  you  will  take  so  much 
of  merit  as  you  may  find  in  it  and  make  it  available  for  the 
service  of  mankind". 

IN  CONCLUSION 

The  United  States  has  the  opportunity  and  ability  to  assist  in 
the  solution  of  the  economic  difficulties  of  Europe  and  at  the 
same  time  promote  its  own  interests.  No  plan  can  be  devised  to 
cover  the  entire  subject  which  will  be  capable  of  instantaneous 
execution.  Let  the  United  States  commence  with  the  independent 
creation  of  a  Federal  Reserve  Foreign  Bank  which  will  be  distinctly 
American  in  character  and  control  and  will  utilize  the  excess  gold 
reserves  of  this  country  to  provide  a  gold  secured  currency  for  the 
Central  European  countries.  The  solution  of  this  problem  in  this 
manner  will  redound  to  the  international  credit  of  the  United 
States  and  extend  its  international  commerce.  The  beneficial  effects 
of  this  first  step  will  make  the  others  easier.  With  courage,  patience 
and  good  faith,  the  proposed  plan  can  be  made  the  basis  for  a 
complete  plan  for  the  permanent  restoration  of  the  economic 
equilibrium  of  Europe. 


37 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 

AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


MA3  3fr 


aw  23 


APR  26 


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LD  21-100m-7,'39(402s) 


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